Using a nominee for your company in indonesia: is it a good idea?

Using nominees for a company is still a thing in Indonesia for a variety of reasons. While it’s not always the worst idea, it also comes with a risk that many newcomers in Indonesia are rarely aware of.

Here is everything you should know about nominees agreements for companies in Indonesia and how to limit the risk of these contracts.

What is a company nominee in Indonesia?

If you haven’t been to Indonesia yet, you might be wondering: what on earth is a nominee?

Simply put, a nominee is an Indonesian citizen that will put assets, typically company or real estate, under his/her name instead of the foreigner, in order for the foreigner to run companies that he wouldn’t otherwise be able to run.

Nominee agreements can be very informal, or quite formal depending on the case and the responsibilities of the nominee.

Of course, since the name of the nominee is on every legal paperwork of a company, being a nominee comes with some duties and responsibilities: meetings, signature and tax reports to name a few.

Naturally, being a nominee is rarely a free service, but sometimes the cost might be better than the alternative.

Why do people use nominees in Indonesia in the first place?

Nominees agreements seem shady, and they can be to some extent, but there are actual valid reasons to use them. Here are the most common ones.

Foreigners use nominees to have local companies (PT) instead of foreign owned companies (PT PMA)

Two types of limited liability companies exist in Indonesia: Local PT, that MUST be owned by Indonesian citizens, and PT PMA, that can be owned by foreigners.

The use of Indonesian nominees is almost always in order to open and operate a local PT instead of having to set up a PT-PMA.

The main reasons are that a Local PT has much less restrictions compared to the foreign-owned PT PMA:

• The paid up capital to open a local PT is very low compared to a PT PMA (IDR 50 millions or 3,500 USD vs IDR 10 billions or USD 700,000)
• A local PT can operate in various activities (up to 3) while a PT PMA is restricted to one main purpose
• A foreign-owned PT-PMA has some sectors where it can’t operate at all or can’t operate without a local partner (see the negative investment list)

So most people decide to have a nominee own a local PT instead of setting up a PT-PMA because they want to save on costs, have a more flexible company structure, or simply operate in a specific sector where they are not welcome.

Nominees agreements used to be common to acquire real estate

Although this is less and less true, nominee agreements used to be the common way to get real estate for foreigners.

The nominee would simply be the legal owner of the land, villa or both and the foreigner would actually be the one enjoying it.

These agreements aren’t as common as they used to be after a few cases of nominees agreements gone wrong made many people understand that they should secure their property investment in other ways.

What are the dangers of having a nominee for your company?

Obviously, having a nominee to officially own your company isn’t without its dangers. Here are the things you should be wary of.

You are not the legal owner of your company under a nominee agreement

Not being the legal owner of your company comes with a few cons. 

First, it means you will need to make your nominee come to every meeting or signature where the legal owner of the company is supposed to be present, which can be cumbersome to say the least.

Second, not owning your company can be an issue in some instances where the owner is supposed to be the “public face” or the brand of the company. This is rarely the case for most companies but that is still something you should keep in the back of your mind.

A nominee with bad intention can literally steal your business

A nominee is the legal owner of your company. He/she has his/her name on all important paperwork of your company. 

If your nominee agreement is light or poorly made, your nominee can literally steal your business and get away with it. You’d have pretty much zero chance that any court of justice will go your way: your name is nowhere, your nominee’s is on every legal documents.

So yes, having a nominee taking over your company is something you should be concerned about if you made a DIY agreement, regardless of who your nominee is.

You are more or less dependant on your nominee

In most cases, your nominee isn’t involved in any operational part of your business. He / she only comes to signatures, meetings and other appointments where the owner’s presence is required. 

A nominee is therefore usually only interested in receiving the fee that is due in exchange for the service provided.

But the nominee being the owner of…pretty much everything in your company, he / she could also hold you hostage. You wouldn’t be the first one to have a nominee almost blackmailing, asking for a fee raise or more, and it wouldn’t be like you have a lot of options to say no.

Are there any ways to make a nominee agreement safer?

Most nominee agreements luckily work just as they are intended to be. That being said, they are rarely 100% safe either. 

Here is what you should do to ensure your nominee agreement is as smooth as it can be and in full compliance with local law should a problem arise.

Use a lawyer to make sure your nominee agreement is bulletproof

A nominee agreement for a company should never be an informal agreement. That is the best way to become the hostage of your nominee if things go wrong, or worse, having your company taken over by your nominee.

Instead, hire a legal firm and get your nominee agreement professionally drafted and notarised. They might help you draft a nominee agreement if you already have an individual nominee, or use a nominee company that can provide professional nominees.

A nominee agreement drafted by a legal firm ensures among other things that your nominee can’t run away with your company. One way of doing so is usually to make a loan agreement between you and your nominee. Your nominee is officially buying the shares through a loan that you are providing. As a creditor, your shares are pledged as collateral, which make them impossible to “steal”.

Do not use random people, employees or friends as your nominee

One of the most common mistakes foreigners in Indonesia make is to use people they are acquainted with as their company nominee.

Unfortunately, this is wrong approach for different reasons:

• Friendship, love and respect can be a lot more fickle than you think
• People change when money is involved, especially when they think they are missing out / not receiving their fair share
• Being a nominee is a job with a few missions and requirements

A nominee agreement should always be considered as a commercial transaction rather than something with emotions involved. 

It is therefore always preferable to use people that are dedicated to be your nominees and that would simply move on and not hold grudges if you stop using their services for one reason or another.

A nominee that doesn’t have the know-how to run your business is always safer

If you plan on using a nominee that you know, it is always safer if the nominee isn’t involved in the daily operations of your business.

Not knowing how the business works, the teams involved or having the network to operate it is one added layer of security that makes things much less tempting.

To secure your nominee company, don’t put everything in your business name

Leaving with a company that you own as a nominee is very complicated. With a proper nominee agreement, it’s already nearly impossible.

But for some businesses, you can even take the safety one step further by putting some assets that aren’t necessarily tied directly to Indonesia or your business under your own name instead of your company’s name. 

If you have another company abroad that you fully own, you can even use this company as the legal owner of some key assets.

Such key assets could be: patents, trademarks, domain names and hosting of the website to name a few.

Conclusion

Although nominee agreements have a bad reputation, they shouldn’t all be painted with the same brush.

There are some valid reasons to use a nominee to own a local PT over setting up a PT-PMA. Likewise, it is entirely possible to make nominee agreements very safe for all parties involved, with a risk of seeing your business taken away from you close to zero.

Whatsapp us now if you want to set up a local PT with a nominee.